Time out: punters digest tax impact

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Direct deal activity is expected to take a break in the next few weeks as the small to medium commercial market determines the longer term impact of the NSW Government's new vendor tax, imposed on the sale of investment properties from June 1.

In the past week there has been a peak of sales, with about $2 billion going through up till midnight of Monday, the last day before the tax took effect.

But the spurt of auctions in NSW was not sufficient to lift national volume during May. National auction volume was much lower with just over $210 million worth of property being sold during May compared to $310 million at the same time last year.

Independent researcher CPM Research said clearance was also weak with only 60 per cent of the properties offered in May being sold compared with 73 per cent in May 2003.

The average price of a commercial property sold during May was $1.26 million, compared to $1.41 million a year earlier.

The managing director of CPM Research, John Wakefield, said that the national commercial property auction market continued to exhibit sluggish conditions and had done so since the beginning of the year.

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"In the year to May 31, volume fell 27 per cent to $306 million compared to the same period in the previous year. National clearance was only 57 per cent compared with 74 per cent in the year previous.

"With vendors trying to beat the tax changes, NSW volume lifted to close to 150 commercial properties being offered for sale during the month of May."

This increased offering, however, was not matched by demand, with clearance, a very low 54 per cent, resulting in only $127 million worth of property changing hands.

Victoria remains the strongest state in terms of clearance, although the volume of selling at auction has fallen sharply. Only $51 million worth of property sold during May, compared to $123 million at the same time last year.

In Victoria, in the year to date, almost $200 million of commercial property sold at auction, a fall of 36 per cent compared with the same period in 2003. Clearance also fell to 68 per cent in the year to May 31 compared to 75 per cent in the year to May 31, 2003.

One of the largest deals last month was the $92.5 million acquisition of the AGL building in North Sydney by ING Office Fund.

The fund's chief executive, Tino Tanfara, said this was one of the best A-grade buildings in North Sydney, where there is a high double digit vacancy rate.

"The acquisition will redeploy a significant portion of the capital from the sale of 50 per cent of 10-20 Bond Street at an attractive initial yield," Mr Tanfara said.

"Through proactive asset management of the building, including the AGL lease expiry in November 2005, which accounts for 47 per cent of the building's tenancy, there is further opportunity to enhance the returns from the property."

Another large sale on the horizon is Fox Studios by Lend Lease and News Corp to CFS Gandel Retail Trust.

The sale, said to be worth about $88 million, is very close to completion, although it will not escape the new vendor tax.

The complex, which claims to be enjoying success as a retail and entertainment area, was a problem asset for the joint owners, mainly through the failure of the Fox backlot.

CFS Gandel Retail will upgrade the site and integrate it with other retail assets including Chatswood Chase in Sydney and Chadstone in Melbourne.